The rateable value of a property is assessed by the Valuation Office Agency based on the annual open market rent for the property. The last revaluation took place back in 2010. The new rateable values are due to come into effect on 1 April 2017. Some landlords will be affected by significant increases in the rateable value of properties.

In addition, the changes to rateable values impact upon the amount of statutory compensation landlords are liable to pay to tenants when terminating a protected business lease. The timing of service of statutory notices to determine a tenancy will be critical to the amount of statutory compensation payable by a landlord wanting to regain possession.

Under the Landlord and Tenant Act 1954, if a landlord wishes to oppose a renewal of a business lease, under a ‘no-fault ground’ then it is liable to pay to the tenant statutory compensation.

Statutory compensation is directly linked to the rateable value of the property. Where the tenant (or its predecessor carrying out the same business) has been in occupation for 14 years or more, the landlord will be liable to pay statutory compensation which is equal to twice the rateable value of the property. Where the tenant's occupation has been for a shorter period, compensation will be payable at the rateable value.

The rateable value which should be used to calculate the statutory compensation due to a tenant will be based on the valuation list in force at the date that either of the following is served:

1.     the landlord's section 25 notice terminating the tenant's tenancy opposing renewal on a no fault ground; or

2.     The landlord's counter notice to a tenant's section 26 request for a new tenancy, opposing renewal on a no fault ground.

If either the section 25 notice or section 26 counter notice is served on or after 1 April 2017, compensation will be calculated by reference to the new rates list which could see a landlord paying a significantly greater compensatory sum to the tenant if it is successful in making out this ground. Conversely, if either of these notices is served before 1 April 2017, the rateable values detailed in the 2010 list will still apply.

It is therefore crucial that a landlord considers the new rateable value of its property as soon as possible in order to ascertain when such notices should be served to minimise the compensation payments due.